The bond market on Wall Street is a poker game with many, many millions at stake. Look beyond the pinstripe suits who pore over ledgers at the foot of Manhattan and you will see them fret over the same questions I face when I throw chips on the poker table in my garage. We all weigh risk and reward.
Should I bet a few bucks on my low straight, when Peter has the face of a guy holding a flush? Based on years of research — watching him play — I know he rarely bluffs. Steve looks like he’s hiding a full house. Five bucks against a pot of $30? I fold.
When bond traders and investors sit across the table from D.C. finance chief Nat Gandhi, Mayor Adrian Fenty, council Chairman Vince Gray, finance commitee Chairman Jack Evans and top budget officials, they wonder: Will the people running the nation’s capital be able to pay back the $270 million they are offering in government-backed bonds this week? Buy or fold?
Wall Street investors are betting on D.C. They keep putting their money on the table — $800 million back in March. Fenty and Gray will have $31 million more to spend on building schools and such if this month’s bond sale succeeds.
When California Gov. Arnold Schwartzenegger bellies up to the table, the investors check California’s falling fortunes and walk away. Both California and Michigan are reporting huge budget deficits and facing collapse. New Jersey just got a “negative” bond rating.
Heck, if Arnold is handing IOUs to pay for state services, why would investors bet he would pay them back?
This week Gandhi reported that investors bought $270 million in D.C. bonds. Based on ratings by agencies like Standard and Poor’s, they bet that D.C. will pay them back with interest. S&P gave D.C. bonds with taxes as collateral its high rating — AAA. The rates will apply to the $800 million D.C. borrowed in bonds in March.
As always in gambling, there was luck involved.
“Investors were looking for strong ratings in turbulent times,” D.C. Treasurer Lasana Mack told me. He took the pilgrimage to New York with Fenty and Gandhi. “We gave them a relatively high rate of return; plus the income is tax-exempt.”
Put your arms around this: D.C. is a safe bet.
What will city fathers do with the $31 million they say they will save in the deals? Here’s where Gandhi comes in. The politicians have plenty of buildings and programs they could fund, but Gandhi — playing “Dr. No” — plans to salt away the money and use any savings from this particular bond deal to pay down bonds with higher interest rates. The candy store of the Marion Barry days has closed.
Still, when you see Fenty cutting ribbons on new school buildings, which he’s doing at a rapid rate, keep in mind that many are paid for by previous deals in the high-stakes bond game.
It’s a game our boys seem to be playing well.
E-mail Harry Jaffe at [email protected]
